A merger occurs when two firms join together to form one. The new firm will have an increased market share, which helps the firm gain economies of scale and become more profitable. The merger will also reduce competition and could lead to higher prices for consumers. The main benefit of mergers to the public are: …
Definition of Capital accumulation This is the process of acquiring additional capital stock which is used in the productive process. Capital accumulation can involve Investment in physical fixed capital (e.g. factories, machines) Portfolio investment – purchase of bonds, shares and cryptocurrencies Investment in assets, such as housing. Measuring capital accumulation Capital accumulation can be calculated …
The J Curve effect a depreciation in the exchange rate can cause a deterioration of the current account in the short-term (because demand is inelastic). However, in the long-term, demand becomes more price elastic and therefore, the current account begins to improve. The J-Curve is related to the Marshall-Lerner condition, which states: If (PED x …
Summary Real business cycle models state that macroeconomic fluctuations in the economy can be largely explained by technological shocks and changes in productivity. These changes in technological growth affect the decisions of firms on investment and workers (labour supply). Hence changes in output can be traced to microeconomic and supply-side factors. Real business cycle models …
A production possibility frontier shows how much an economy can produce given existing resources. A production possibility can show the different choices that an economy faces. For example, when an economy produces on the PPF curve, increasing the output of goods will have an opportunity cost of fewer services. Diagram of Production Possibility Frontier Moving …
The Asian financial crisis of 1997 refers to a macroeconomic shock experienced by several Asian economies – including Thailand, Philippines, Malaysia, South Korea and Indonesia. Typically countries experienced rapid devaluation and capital outflows as investor confidence turned from over-exuberance to contagious pessimism as the structural imbalances in the economy became more apparent. The crisis of ’97-99 …
Readers Question: Is a strong economy generally accompanied by a strong currency? In short, a strong economy is generally characterised by a strong currency. When the economy is doing well, and at a boom period of the economic cycle it implies higher interest rates to keep inflation low. These higher interest rates will attract hot …
Readers Question: Why is debt related to GDP? Debt to GDP shows how significant the debt is relative to the size of the economy. This is important because it affects The size of debt compared to tax revenues. For example in 2018, the gross level of US public debt was $21 trillion. But, with a …